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7 Reasons Bank Stocks May Keep Falling

The following commentary comes from an independent investor or market observer as part of TheStreet's guest contributor program, which is separate from the company's news coverage.

NEW YORK (
TheStreet) -- It appears that several factors are still not priced into the market. Continued downward pressure on financial stocks could be expected as events unfold, especially the potentially disruptive forces that Europe may unleash, or the conclusion that the foreclosure and mortgage lawsuits are larger and more significant than currently believed.

Here are the top seven reasons bank stocks may keep falling.

Occupy Wall Street. Although not a cohesive movement, at least part of its birth can be traced to outsized Wall Street salaries and bonuses, especially since the taxpayer saved most of the Too Big to Fail (TBTF) banks.

Bank Transfer Day (Nov. 5), the day on which Americans are supposed to transfer their deposits to community banks, is more symbolic than real, as the TBTF banks' core consumer deposits are only a small portion of their liabilities and can easily be replaced with no or low-cost funding from the
Fed or elsewhere. Nevertheless, Bank Transfer Day is a PR issue for the large banks.

Margin Squeeze. TBTF have used the arbitrage spread between borrowing costs (near 0%) and Treasury yields (2%+) to profit. And, the purchase of Treasury securities requires no capital under the capital regulations, as Treasuries are "risk free." The Fed's new policy of "Operation Twist" targets longer term interest rates and squeezes this arbitrage spread.

Volcker Rule This has recently been put out for comment by the FDIC. It severely limits trading profits made for the bank's own account and is likely to have a big impact on TBTF trading profits going forward.

Debit Card Monthly Fees. Although such fees are a direct consequence of the limitation on debit swipe fees by the Fed under Dodd-Frank, and it was common knowledge that the TBTF banks would find a way to increase fees elsewhere to make up for their losses on the swipe fees, the timing has turned out to be lousy and the TBTF banks are taking a PR hit, and even from the sponsors of Dodd-Frank who clearly knew that there would be unintended consequences.

Exposure to Europe. According to Michelle Bachmann, the U.S. TBTF Banks have a $700 billion exposure to European Banks. So, a freezing up of liquidity flows to those institutions may have an impact on the value of such holdings. It is clear that the Fed and the European Central Bank will intervene with massive liquidity injections if such events unfold. Nevertheless, the risk of such a freez- up exists. Furthermore, if contagion spreads because of a Greek default, there is no doubt that the TBTF equities will be negatively impacted. So far, we have seen the equity prices of these behemoths ebb and flow with the news (or hope) out of Europe regarding their evolving "rescue" plan.